Bloomberg News

China Inflation May Provide Room for Stimulus: Economy

March 09, 2012

Food price gains last month slowed to 6.2 percent from a year ago. Photographer: Adam Dean/Bloomberg

Food price gains last month slowed to 6.2 percent from a year ago. Photographer: Adam Dean/Bloomberg

China’s inflation eased to the slowest pace in 20 months while new loans, industrial output and retail sales were below analysts’ forecasts, boosting the case for easing monetary policy in the world’s second-biggest economy.

Consumer prices gained 3.2 percent in February from a year earlier, the National Bureau of Statistics said. Local-currency loans were 710.7 billion yuan ($113 billion) in February. Factory production rose 11.4 percent in January and February combined and retail sales advanced 14.7 percent. Data in the first two months of the year are distorted by a weeklong holiday.

Asian stocks rallied on a debt deal in Greece and speculation that China’s moderating inflation and growth will lead the ruling Communist Party to loosen policy. Citigroup Inc. says a cut in banks’ reserve requirements may come as soon as this month, while the government also has more room to boost wages and ease price controls on energy and water.

“Today’s data, with surprisingly low retail sales and output continuing to weaken, point to economic growth further cooling to 8 percent or lower this quarter,” said Ding Shuang, senior China economist at Citigroup in Hong Kong. Data this month may show further worsening if the government fails to cut banks’ reserve requirements for the third time since November, he said.

The benchmark MSCI Asia Pacific Index of stocks rose 1 percent as of 6 p.m. in Tokyo, while China’s Shanghai Composite Index gained 0.8 percent. China’s interest-rate swaps had their biggest weekly decline in three months.

Below Estimates

The rise in consumer prices was less than the 3.4 percent median estimate in a Bloomberg News survey of 35 economists and below January’s 4.5 percent rate. Retail sales were forecast to rise 17.6 percent in January and February, while analysts predicted industrial output growth of 12.3 percent.

Producer prices were unchanged in February from a year earlier, the Beijing-based statistics bureau said. That compares with a median estimate for a 0.1 percent increase. The gauge rose 0.7 percent in January.

New local-currency loans reported by the central bank compared with the 750 billion yuan median estimate in a Bloomberg News survey of 26 economists and 738 billion yuan in January. M2, the broadest measure of money supply, expanded 13 percent in February from a year earlier.

Fixed-asset investment excluding rural households rose 21.5 percent in January and February combined from a year earlier, above the 20.5 percent median estimate of economists surveyed by Bloomberg News.

Home Prices

China’s home sales declined 25 percent in the first two months of the year as the government pledged to maintain its housing curbs, separate data showed today.

The statistics bureau didn’t release the year-over-year change for industrial production and retail sales in January or February alone.

China’s government has done a terrific job in controlling inflation, Stephen Roach, former non-executive chairman for Morgan Stanley in Asia and previously the bank’s chief economist, said at a conference in Shanghai yesterday. Concerns that China will have a so-called hard landing are “vastly overblown” even as economic growth becomes more unbalanced, Roach said.

Even so, “they need to focus more on the downside risk” to growth, Qu Hongbin, co-head of Asian economics research at HSBC Holdings Plc in Hong Kong, said in a Bloomberg Television interview. “They need to react to those data and I think they will,” he said, predicting the central bank will lower banks’ required reserve ratios at least twice by the end of June.

Resource Prices

Premier Wen Jiabao this week set an inflation target of about 4 percent for 2012, unchanged from last year. The goal takes into account risks from imported inflation and rising costs of land, labor and capital and will leave room to change the way prices of resources including electricity and oil are set, he told lawmakers at the National People’s Congress.

Tao Dong, a Hong Kong-based economist at Credit Suisse Group AG, said the industrial-production report “looks bad” and is a “loud warning to the commodity bulls.” Still, China’s leaders are unlikely to start a large-scale stimulus right away and may wait until reports on March data “before making a decisive call on the direction of the economy,” Tao said.

Food price gains last month slowed to 6.2 percent from a year ago, compared with a pace of 10.5 percent in January, and accounted for 62 percent of the total inflation rate, the statistics bureau said today. Consumer prices fell 0.1 percent from the previous month.

Malaysia Rate

Elsewhere in Asia, Malaysia’s central bank is forecast to keep its benchmark interest rate at 3 percent for a fifth meeting today, according to economists surveyed by Bloomberg.

In Europe, Germany said exports rebounded 2.3 percent in January from the prior month, while French industrial production in the same period also bounced back 0.3 percent. Italy’s industrial output probably dropped in January, while Spain’s retail sales declined.

U.S. employers probably added more than 200,000 workers for a third straight month in February, economists predicted ahead of a Labor Department report today. The jobless rate stayed at 8.3 percent, a separate survey showed.

China’s economic growth has moderated for the past four quarters as Europe’s debt crisis crimped demand for exports and the government limited lending and imposed curbs on home purchases to rein in prices.

Separately today, Politburo member Bo Xilai gave figures that indicate China’s wealth gap has now exceeded the point that analysts view as a predictor for social unrest, in a rare disclosure of the country’s income disparity.

Barclays Capital is forecasting a “cautious easing” stance for monetary policy and a “modest expansionary fiscal policy stance to ensure a soft landing of the Chinese economy,” said Chang Jian, a Hong Kong-based economist at the company.

To contact Bloomberg News staff for this story: Li Yanping in Beijing at yli16@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net


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